My fiance’s father was a stockbroker. He retired from the state and as an insurance agent. He now worked part-time as an independent stockbroker for an independent boutique brokerage firm. I was intrigued and asked him what was involved with his work, thinking it may be something I’d like to do as a side-job until I was ready to retire and be a full-time broker.
Paul (my future father-in-law) gave me a book on MacroEconomics and another on trade with China. He told me to read these, and we’d talk. I read them with interest and saw that most of the modern world’s growth was in the far east and developing countries at that time. There was a risk but lots of money to be made if a person was willing. We talked about my interpretations and discussed my financial theories and thoughts about the stock market in general. He was explaining how his job worked and how he made money for his clients.
In short order, he convinced me that he would take me under his wing and help me get started. Paul talked to the CEO over the brokerage firm, and they agreed to take me on if I could obtain the licenses, with Paul overseeing my work.
It Takes A Lot of Money to get licensed.
I learned that I’d need to pass the FINRA (Financial Industry Regulatory Authority)exams to become licensed. I would need the Series 6, which enabled me to sell investment company products and variable life annuities. I would also have to pass the Series 63 — state securities law exam to work. Paul’s books were quite dated, so I purchased new study guides and took online courses through Kaplan University. Their guides and online instruction, with quizzes, allowed me to pass these on the first attempt. These ran just under $2,000 combined. — Ouch!
The testing is done via the Pearson-Vue Testing Centers. These require registering your fingerprints, completing a background check to determine you aren’t a felon or have any record of financial crimes. You show up at the testing center at your pre-scheduled time and empty your pockets, have your palm scanned, and identity verified with two forms of identification. I tell people that even if you fail the exam if you are admitted into the testing center, you are at least qualified to work the nuclear launch controls at any government missile facility… it feels that secure.
We learn of our test results immediately, and they are forwarded to our brokerage. They contact us with the information we need and issue a representative number.
Stock Broker is not a real title. You are formally known as a Registered Representative, selling individual stocks and bonds or funds that contain stocks and bonds. The brokerage (also known as a Broker-Dealer) issues your representative number, as you’ll have to enter this on all sales materials you complete when you sell stocks/bonds/mutual funds.
A Stock Broker is just a salesman.
I learned from Paul that every time we make a sale and our client buys from us, the brokerage collects 1% of the client’s total amount. The brokerage contracts with us on what they give us. My contract was 85% — Paul’s was 80%. That means the brokerage would pay me 85% of the 1% they collected. In other words, for every dollar they took in, they would give me 85 cents and keep 15 cents. Paul got 80 cents, and the brokerage took 20 cents from his sales.
It’s a numbers game. This small part that we made on commissions made the sales fees less ominous and made the feeble amount seem harmless to clients. They almost felt sorry for us when they learned how much we made from their purchases through us.
As long as they remained invested, the investment company would also pay us an annual sales charge as a commission. This amount would again run from one to half of a percentage of the total invested.
It was in everyone’s best interest if the client made regular contributions to their investment accounts. We usually sold mutual funds as IRAs or Roth IRAs (Individual Retirement Accounts). These had tax benefits for the client.
It’s a Numbers Game
For every one client, we would sign up as a referred person — friend or family member of a client, etc.. We would happily sign them up and help them make wise investments in their future.
The best thing was to have a steady stream of incoming clients. We did this by signing companies and having them send all eligible employees to us when they met the criteria for signing up for their retirement benefits — a 401k, SIMPLE IRA, etc.. These individual accounts were small. Still, when made systematically, they added up. The number of people who invested with us grew steadily until we lost a corporate client.
Shortly after I started working alongside my future father-in-law, one of his major company clients dropped us. They had changed CEOs, and he wanted to go with another company where one of his friends worked. Within three months, our number of clients dropped by nearly 30%, taking 35% of our assets under management.
Paul had a spell of poor health, and during a long vacation with his wife in Florida, he ended up buying a winter home there — and had a heart attack that forced him to remain there for several months. I was able to help him manage his clients when he forwarded the message that they had tried to get in contact with him. There was nothing I could do to help his clients when I didn’t know they were reaching out for help. We had very few shared clients where I had access to all of their contact information.
During Paul’s extended stay in Florida, a second major client dropped the bomb. They, too, were going with a friend of a friend. The majority of their employees invested with us had their funds transferred to the new 401k managing company. Our assets under management dropped 75%.
You can’t do this part-time.
My intentions were good, but I could not pull in more than one or two clients per year. Despite a post-card mailing campaign, e-mail campaigns, flyers, booths at a county fair, and other marketing attempts. I was unable to pull in the number of clients necessary to stay in business.
It takes money to make money.
My premium for Errors and Omissions Insurance ran just under $2,000 each year. Another few hundred for renewing state licenses, and a few hundred to the brokerage for security and regulatory compliance training and software… it began to add up.
In the end, I was spending more than I was making on an annual basis.
This year I parted ways with the brokerage firm — no hard feelings or regrets. I do not believe that I received the necessary support and training I needed from Paul to thrive. I’m not even sure that he could genuinely provide what I needed. My income stream was not sufficient for the brokerage to keep me on, and I had already made up my mind that I could no longer afford to keep paying fees and insurance when I was not breaking even.
This happened at a good time for me. My wife needs my help working a food-truck for her son when he’s working his primary job.
I needed more free time to write. I began writing as a freelancer at the beginning of last year. I’ve managed to make more money writing articles that I ever did as a stockbroker (aka Registered Representative).
The Experience Is Never Wasted
I’ve managed to keep everything in perspective. No experience I’ve ever had has been wasted. The knowledge I’ve gained working as a broker has helped our financial situation. I married Paul’s daughter a few years ago and managed our family’s retirement accounts. The lessons learned have helped me expand our nest egg very nicely, and it continues to grow.
I’m not a stock guru or investment ninja by any means. I learned that most people lose money in the stock markets because they buy and sell on impulse — due to their emotions.
You shouldn’t buy stocks because their price is going up or down, whether the market is crashing or soaring. The sensible facts are:
- Buy stocks in companies that are solid and have good reputations.
- If the stock market is dropping like a rock and everyone is selling, this is not the time to sell. This is a buying opportunity in many cases.
- Buy low — sell high. Buying and selling because of wild swings in the market are not advisable. Wait until things are less volatile and see where your stocks are positioned. People lose fortunes when selling on impulse and waste money when buying because a stock is skyrocketing. If this is happening, remember — you’ve already missed the boat. There is no point in jumping on a ship that’s going over a waterfall or trying to get into a rocket that’s already blasted off.
- Diversify. Spread your investments around. Do not put all of your eggs in one basket. Why? Because if you drop your basket, all of those eggs will be broken. If all your money is in one stock and that company has a major meltdown (think about Enron), it may not recover. Own several stocks in multiple companies to spread your risk out. Mutual funds are a collection of stocks and bonds, which are, by their nature, diversified. — It is still a good idea to own shares of multiple mutual funds to diversify further.
I enjoyed my time as a stockbroker. Even though I was more of a mutual-fund broker, I helped many clients begin preparing for retirement and helped them establish accounts with stable funds.
Being a broker isn’t for everyone. I didn’t have the time necessary to market to clients and businesses to succeed in the industry. Money management, which was my favorite part of the company, is just a side-part of the job. An Investment Advisor gets paid only to advise their clients on how to manage their money, though they may also sell stocks, mutual funds, and bonds to their clients… I would probably have done better in that niche, but I didn’t know much about it at the time.
What I did learn was that I enjoyed writing more than trying to sell shares of the market. I’m just as good (in my opinion), and it helps that I know more about the financial markets when I’m writing on subjects close to that niche.
If you aren’t already saving for retirement yourself, I suggest you do so. If you are, I hope you’ve invested your saving in a suitable retirement vehicle that gives you better returns than traditional savings account at a bank. It should also be tax-advantaged, such as deferred taxes or growing tax-free.
Thank you for reading. If you’d like to check out more of my works, you’ll find them on my website JohnMDabbs.com, and here on Medium.com.